French Telecoms SFR deal agreement modestly delayed (as expected). Exclusivity period extended to 5th June

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French Telecoms SFR deal agreement modestly delayed (as expected). Exclusivity period extended to 5th June

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offering DD standalone earnings CAGRs, as well as consolidation related upside;

Price (14 May 26): €51.72

and (4) The CEO’s of both Orange and Bouygues will be attending our TMT

Conference next week.

ORAN.PA, ORA FP

A reminder of the 17th April offer: Bouygues-Iliad-Orange entered into exclusive Overweight

negotiations for the acquisition of SFR’s Telco unit. Highlights included: (1) The Price (14 May 26): €18.53

bidding consortium raised their offer from €17bn previously, to a substantially

higher €20.35bn (unchanged deal perimeter); (2) An exclusive non-binding

negotiation period was set for 15th May, to finalise terms and the transaction

document; (3) The split of the deal price remained largely unchanged at 42%

Bouygues (prev 43%), 31% Iliad (prev 30%), 27% Orange (unch). Our view: (i)

The scale of the bid hike seemed sufficient to satisfy Drahi’s demands and, so,

makes a deal consummation extremely likely. But investor disappointment saw

Orange’s shares trade -5% on the day; (ii) Whilst a simple industry benchmarking

exercise to determine cost synergies would suggest an NPV of €13bn, analysts

have assumed far lower figures, given asset-specific considerations (weak

fundamentals and limited infrastructure ownership). Should synergies prove

materially higher, it would reassure; (iii) We can only fully assess the stock and

sector implications once we have full deal details including targeted synergies,

integration costs, regulatory jurisdiction (especially in the context of the draft new

EU merger rules), break-fees, etc; and (iv) Deal price aside, we consider this a once

in a lifetime transaction that can deliver both tangible cost savings and long hoped